Monday Morning Wrap Up – August 24, 2020
Posted onElection politics take center stage.
Only 70 days until the presidential election.
The nation is hurtling towards one the most contentious and most significant presidential elections in decades.
Indeed, the political conventions are now in full swing. And, thanks to Covid, the nominating conventions are virtual.
Instead of in front of thousands of in-person delegates, Joe Biden officially accepted the Democratic presidential nomination in a virtual event last week.
President Trump and the Republicans follow suit this week in a four-day virtual, televised affair.
The election fast approaches as partisan politics reach new heights daily, the economy is mired in the worst recession since the Great Depression – with millions of workers unemployed. And, the health crisis continues to rage on – with over 176,000 Americans passing from the Covid virus this year.
Meanwhile, on Capitol Hill, negotiations on another round of emergency stimulus stalled last week as Republicans and Democrats remained far apart on ideas of how to help the millions of unemployed Americans.
Stocks Face a Tough Fall
In the midst of the economic woes, the S&P 500 closed at a record high last week!
How can this be you ask?
It’s like when you play cards.
Only in this case, the dealer is the Fed. And, the Fed is “all in” on stocks.
The Fed created trillions of new dollars in 2020 – to provide liquidity to the stock market and – in never before moves – the dealer, er the Fed, is buying corporate bonds and ETFs this year. So, the house is stacking the deck in the favor of the stock market. Nonetheless…
Challenges Loom Large
Looking ahead, the stock market faces a tough couple of months.
The contentious U.S. presidential election, rising U.S.-China trade tensions, and still the threat of another wave of the coronavirus pandemic coinciding with the seasonal flu season lie ahead. After the swift stock market run-up, a pullback is overdue.
This Week’s Main Event
The annual Fed conference in the swanky mountain town of Jackson Hole, Wyoming, will be virtual this year.
You can watch it live – a first ever for this exclusive and previously closed door Fed event.
Mark your calendar for Thursday and Friday!
The annual Fed Economic Policy Symposium, titled “Navigating the Decade Ahead: Implications for Monetary Policy,” can be viewed on the Kansas City Fed’s channel on YouTube (9:10 am, ET).
Thursday morning Chair Powell is slated to deliver his keynote speech.
What to Watch For
After the release of the July FOMC meeting minutes, it became clear the Fed is preparing to adopt an average inflation target. History continues to be made as monetary policy goes where it has never gone before…
What that means
If inflation targeting becomes official – it would open the door for the Fed to tolerate moderate overshoots of its 2% target to compensate for periods of below-target inflation.
- These changes would reinforce market expectations of a “lower for longer” zero interest rate monetary policy to support the economy once the coronavirus is finally under control.
Inflation targeting is bullish for gold. Why? Because U.S. Treasury yields would slip even lower, giving a lift to the price of gold and silver.
In Economic News Last Week
Over a million Americans joined the unemployment rolls last week.
Initial unemployment claims jumped to 1.106 million in the August 15 week, making it the biggest weekly increase since March.
Big picture: Over 50 million Americans filed for unemployment insurance since the pandemic began in March.
Key takeaway: The economy is hitting the skids again, now that the $600 per week extra in unemployment insurance expired. The economy is not out of the woods yet. It’s only stock market investors who are riding high as the Fed’s money printing benefits Wall Street more than Main Street.
Who Owns Stocks? (Not As Many As You Might Think)
While you likely own stocks, not all Americans do.
In fact, the percentage of Americans who own stock, either directly or through retirement or mutual funds, is falling. It most recently stood at about 55%, the Wall Street Journal reported last week.
In fact, “Stock ownership is increasingly concentrated among a sliver of the population. The top 10% of Americans by wealth owned 87% of all stock outstanding in the first quarter, according to data from the Federal Reserve,” the Wall Street Journal said.
That means, while you may be cheering the recent recovery in stocks, it has little impact on the day to day financial picture for about half of Americans who own no stocks at all.
Gold Enters Much Needed Consolidation Phase
In the meantime, after the historic, runaway bull market that drove gold through the $2,000 mark earlier this month, the precious metal has entered a short-term consolidation phase.
Just like a car that raced at top speed for hundreds of miles and is now out of gas, the gold market has reached a temporary stalling point.
Sideways consolidation in gold is likely for at least a few weeks, as the gas tank refills.
Where gold might go in the future
The underlying fundamentals for the gold market have not changed. Major investment firms continue to forecast higher gold prices. Goldman Sachs expects gold to climb to $2,300 an ounce within 12 months. Bank of America raised its 18-month forecast this April to gold at $3,000 an ounce.
Until next week…
Regards,
David
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